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Breaking News: Tip Pools May Be Allowed Again

Last year the 9th Circuit Court ruled that existing restrictions on tip-pooling were legal, making tip-pools that included traditionally non-tipped employees a violation of the Fair Standards Labor Act. In short, tips received by an employee belong to the employee, and the employee cannot be forced to contribute those tips to a pool that includes employees who are not traditionally tipped (like cooks and dishwashers.) This decision affects employers under the jurisdiction of the 9th Circuit Court: California, Nevada, Washington, Arizona, Oregon, Idaho, Montana, Hawaii, and Alaska.

On July 20th, the US Department of Labor announced plans to rescind the regulation, clearing the way for tip-pools to once again be legal in certain circumstances. Tip pools will be allowed in cases where a state doesn’t have a tip credit, or when an employer pays the full minimum wage. In those situations, the employer can mandate tips be shared with the back of the house.

This announcement isn’t official yet, but only shows the intent of the US Dept. of Labor to act on the restriction over the next 12 months. With the amount of attention paid to the issue, however, employers should expect to see action sooner than that.

This doesn’t make tip pooling suddenly legal, so don’t make changes to your restaurant’s tipping policies quite yet. The current ruling in the 9th Circuit is still in effect, but if the regulation is changed, that decision could quickly be voided.

The restaurant industry has long used various kinds of tip pools, but recent changes to both the legal and labor environments has more and more people re-thinking worker compensation. Some businesses are trying out ideas like adding a separate tip-line for the cooks, others are adding service charges to their guests’ bills. Another approach has been to simply raise prices and pay higher hourly wages.

No specific strategy has emerged as a clear favorite, however, with each having its own drawbacks. It’s also difficult to experiment in both the face of guest expectations, not to mention a worker’s take-home pay. For the moment, it’s wise to proceed with caution when deciding how to handle pooled tips.